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HindustanTimes Fri,19 Sep 2014

Rotten system eating into apple trade

Devinder Sharma   April 09, 2013
First Published: 09:39 IST(9/4/2013) | Last Updated: 09:41 IST(9/4/2013)

The next time you step out to buy apples, know for sure that the high price you are paying is not because of any shortfall in production. The price is actually manipulated by a well-knit network of agents and contractors. So while you end up shelling out anything upward of Rs. 110 per kg, the grower does not get more than Rs. 35 of that.

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The journey of the Kashmiri apple from the orchard to your plate forms a complex web. An eye-opening report -- 'Marketing System and Price Spread of Apple in Kashmir' -- by the National Bank for Agriculture and Rural Development (NABARD) shows there are no less than 50 intermediaries or market functionaries who collectively siphon off 71-75% of the consumer price. These include free growers, captive growers, pre-harvest contractors, forwarding agents, commission agents, commission-cum-financiers, cold store/controlled atmosphere store owners, processors, retailers, 'mashakhor' (sub-wholesaler), 'laddani' (sub-wholesaler) and 'thelewala' (vendor). There are about 3,000 commission agents for apples in J&K alone -- add another 2,000 operating in Azadpur market in Delhi, and you realise how lucrative the trade is.

KNOW THE MAZE

Now let us look at how the system works. The harvest season begins in July, and reaches its peak by the middle of November. A few months before the harvest, pre-harvest contractors make a rough assessment of the production expected, and provide an advance to the grower.

More often than not, the cost of fertiliser and pesticides applied and the cost of transportation, packing and harvesting are borne by the grower. In addition, the grower has to provide 6-12% to the commission agent for the agreement to lift his produce. This is against the prescribed norms.

These pre-harvest contractors deliver the produce to Azadpur market in Delhi, where two types of auctions take place -- open and undercover. The study observes that in both, the stakes are never raised high. The system appears to be more or less pre-fixed, and it works out to be a buyer's market.

HOARD AND EXPLOIT

Interestingly, commission agents have been lately setting up cold stores and controlled atmosphere stores (CAS) for which they receive subsidy and cheaper credit from banks. It is generally believed that cold stores help in reducing losses and thereby provide a better price to growers. In reality, CAS helps in manipulating prices. The NABARD report says: "Seven cold stores in Azadpur market and another 100 CAS stores at Kundli in Haryana are leading to a sort of 'hoarding'."

Many commission agents have become self-buyers who purchase from the contractors or in auctions, and showing it as 'excess/unsold' apples shift these to stores for long duration. While the grower is paid the price prevailing at the time of auctions, the hoarded apples are sold in the off-season at high price. The benefit does not percolate to the small growers, nor does the consumer get any benefit.

The report also blames commercial banks for extending subsidised loans to commission agents instead of apple growers, who then exploit growers by extending loans at a higher rate of interest. In 2011-12, apple growers received an advance of Rs. 1,200 crore of which only Rs. 200 crore came from banks, the rest from commission agents and contractors.

It is obvious that the price rise is not because of supply constraints. It also negates the view that farmers benefit when inflation goes up.

DON'T BE DRASTIC

I agree that primarily it is the poor implementation of Agricultural Produce Market Committee (APMC) Act of 1997 to blame for the mess. Over the years, traders have cartels which are difficult to break simply because successive governments have turned a blind eye.

But to say that the way forward is to dismantle the APMC Act and allow private terminal markets, which are supposed to provide higher price to growers and a better price to consumers, is another flawed hypothesis. The prevailing rotten system needs to be set right, but throwing it away is not the right answer.

It is being suggested that foreign direct investment (FDI) in retail will set the house in order and end the exploitation of the farmers. Without even examining the implications, I find the policymakers are keen to bring in organised retail.

Let us look at how the organised retail has exploited the dairy farmers in Britain. Supermarket giants like Tesco and Sainsbury have pushed prices down to unsustainable levels, pushing dairy farmers out of business. These farmers are crying for a fair price mechanism that the supermarkets must be made to adhere to.
 
(The writer is a food and agricultural policy analyst)

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